Russia to compete for ASEAN market with China and United States

The sanctions imposed on Russia by the EU and the U.S. over Moscow’s role in the Ukrainian crisis has led to Russia starting to diversify its investment risks and expanding trade ties with Southeast Asia. Statements made during Russian Prime Minister Dmitry Medvedev’s recent visit to the region underlined Russia’s intentions to fight for a share of the ASEAN market with the U.S. and China.

Russia is aiming to double trade with three countries in Southeast
Asia by 2020 – with Thailand and Indonesia to $10 and $5 billion, respectively,
in 2016; and with Vietnam to $10 billion, according to statements made during a
recent official visit to the region by Russian Prime Minister Dmitry Medvedev.

However, trade partnership with Russia is interesting not
only to nations belonging to the Association of Southeast Asian
Nations (ASEAN). According to the news agency Yonhap, South Korea intends
to participate, along with Russia, in a consortium project in the North Korean
special economic zone of Rajin-Sonbong in late April.

"The conflict between Russia and the West in the
context of the Ukrainian crisis raises yet another ambitious goal for Korean
diplomacy," said South Korean Vice Foreign Minister Cho Tae-yul in Seoul
on April 13.

April ambitions

In the course of the visit by the Russian delegation,
agreements were signed to upgrade Vietnamese power plants as well as to supply Hanoi
with Sukhoi Superjet 100 aircraft and railroad cars. Russian companies are also
in negotiations on the construction of Vietnam's first nuclear power plant Ninh
Thuận I, the acquisition of the Dung Quat oil refinery, and the assembly of
Russian KAMAZ trucks in the region.

From Vietnam, the Russian prime minister went to Thailand,
where on April 7-8 he signed agreements with the government of Thai Prime
Minister Prayut Chan-o-cha, which again featured cooperation in the energy
sector and the supply of Sukhoi Superjet 100 planes and KAMAZ trucks, as well
as the use of Thai capital for the construction by Russia of a railway in the
Kalimantan region of Indonesia. In turn, the Thais have managed to negotiate the
expansion of the supply of their agricultural products to Russia.

Competing alliances

One of the key statements during Medvedev’s tour was made
by Prime Minister Nguyen Tan Dung, who said that the negotiations on the
establishment of a free trade zone between his country and the Russia-led
Eurasian Economic Union
(EAEU) may be completed in the coming months.

"Vietnam is a great base for entering the dynamic
ASEAN region and making contracts with other countries of the alliance,"
says Yaroslav Lisovolik, head of the analytical department of Deutsche Bank.

Apart from ASEAN, the U.S.-led Trans-Pacific Partnership (TPP)
is trying to enter the region, while a local free trade zone between China and
ASEAN is also in operation.

"Russian business is often inferior in terms of
competitive ability to businesses from the EU, the U.S., Australia and China that
are already working in Vietnam and Thailand," said Yury Zaitsev from the
Institute of Applied Economic Studies at the Russian Presidential Academy of
National Economy and Public Administration (RPANEPA). According to Zaitsev, the
peculiarities of state regulation in Asia are also a barrier to Russian
business.

However, according to Lisovolik, Russia still has a few
advantages in foreign trade in alliance with ASEAN: "First, we can open
the entire EAEU market to our partners. Secondly, offer of fuel and energy
cooperation with Russia will be interesting for many countries," he said.

Viktor Sumsky, director of ASEAN Centre in
MGIMO-University, says that in addition, Russia will try to step up cooperation
between regions. "The emphasis is on attracting investment to the Russian
Far East," he said.

As its relations with Europe and the U.S. freeze over after
the fall-out in relations over the Ukrainian crisis, Russia is following a
policy of actively developing trade cooperation with Asian countries. "For
us, Vietnam and Thailand are the diversification of export-import and investment
risks," Zaitsev says.

On the whole, Russia has chosen the correct
vector to pursue, says Lisovolik: "ASEAN is the most dynamic and
fast-growing market in the world today."